Last night Microsoft announced that it had changed some of its policies around its forthcoming Xbox One game console that had generated considerable ire in the game console community. Most notably, Microsoft eliminated the requirement that the console be always connected to the Internet. That requirement and other “features” had created great fear in the gaming community that Microsoft was going to quash the secondary market for its console games, requiring users to buy new games and prohibiting them from sharing their games among friends. I won’t get into the details of what they announced and what changed here — you can Google that — but it’s shocking that Microsoft could get something so terribly wrong that they had to reverse course in less than a week. Let’s examine possible scenarios:

Microsoft could have really believed this was a good move. We’re moving towards an always-on environment and Microsoft is not alone in that belief. Just the other week Adobe announced that it would no longer sell packaged versions of its Creative Suite, selling it only by subscription online. If this is the case, Microsoft somehow managed to miss a few things. First off, the use profile of a game console is different than the use profile of a high-end business-oriented software suite. Adobe’s move in no way was a watershed moment. It was an early move but this vision is not yet universal and so Microsoft’s forcing it early was not well received. Moreover, if this was their goal, their value proposition for it was, shall we say, lacking. “Hey, in an always on environment we can deliver you all these neat capabilities. The first ones require you to use our heretofore optional paid online service and we’re also going to regulate if not eliminate your ability to share and sell games but hey, this is the future.”

Microsoft was trumped by Sony. After Microsoft’s announcement, Sony announced details around their PS4. PS4 is $100 cheaper and had none of those draconian features that Microsoft proposed. If Microsoft thought Sony was going to follow their lead, they were badly wrong. Sony not only offered a solution that had none of Microsoft’s downsides, it did so at a price point $100 cheaper. Sony not only didn’t follow Microsoft’s lead, they quickly parodied Microsoft‘s sharing restrictions. My son observed that “13 million views had to sting.”

Microsoft thought people would like this. I’m sure they’ve got all sorts of focus group research that said “we really like your direction.” Maybe they tasked their PR agency with “do a survey with people who will find this strategy palatable.” The sample size was perhaps 17.

Microsoft was planing a “new Coke” scenario. I know this one is really cynical but maybe Microsoft anticipated the reaction and this was done on purpose. This is a strategy Facebook has used in the past. Announce something so over the top that the market reaction will be negative. You can then backpedal, saying “we’ve listened to the voice of the customer.” In this scenario, you assume customers are going to balk on any changes so you purposefully announce something over the top so that when you back up, you’re still ahead of where you were before you made the announcement. I’d consider this a plausible scenario except for the back that Microsoft basically backpedaled to where they were before they made the ill-founded announcement.

You might say “no harm, no foul.” Microsoft backpedaled fast enough that by the time the consoles come on the market, closer to the holiday season, this will all be forgotten. I believe, however, Microsoft has done itself some permanent damage here. If you read your license agreements (and I suggest you do…if you suffer from insomnia”, Microsoft (and typically all vendors) reserve the rights to make unilateral changes in their licensing terms. Bottom line, Microsoft has always had the ability to impose these changes on their users, even post-sale. Nobody worries about these things here because they always think “Microsoft wouldn’t be so stupid as to do something that would slaughter their value proposition.” Well, now you’re thinking “maybe they would.” Sure, they backed off when it became clear they were getting slaughtered but do you think Microsoft has abandoned the approach or merely postponed driving it into their customers? Losing trust in your vendor is a very dangerous position and Microsoft may just have crossed that line. Maybe by beckpedaling they’ve closed ranks with their user base. But I don’t think so. This one will be fun to watch.